The Price Sensitivity of Health Plan Choice: Evidence from Retirees in the German Social Health Insurance

We investigate two determinants of the price sensitivity of health
plan demand: the size of the choice set and the salience of premium
differences. Using variation in both features in the German Social
Health Insurance (SHI) and information on health plan switches of
retirees in the German Socio Economic Panel, augmented with
information on individuals’ choice sets we find that retirees react
less to potential savings from switching when they have more plans
to choose from and when differences between premiums are less
salient. Simplifying choices could save consumers money and improve
the functioning of the health insurance market.